Extension Notebook: Crop insurance perspectives for farmers and landowners

Discussion on the 2023 crop has turned to the subject of crop insurance. The deadline for federal crop insurance sign-up is March 15 for row crops in Illinois.

Federal crop insurance is heavily subsidized at the tune of about 60% of the actual cost of the insurance.

It has been heavily analyzed and discussed over the years, which makes unbiased information widely available.

Farmers and crop-share arrangement landowners are both eligible to manage financial risk with crop insurance.

Federal Insurance

Currently in Illinois, some 80% of corn and soybean acres is protected with federal crop insurance. Most of these acres are covered by insurance products that protect revenue on the farm as opposed to bushels per acre.

The calculated coverage is based on grain prices and yields. Of those acres covered by federal crop insurance, about two-thirds are covered at a revenue guarantee of between 70% and 85% or, in other words, a deductible of 15% to 30% of revenue.

At these levels, it is very possible to reduce financial risk to very negligible amounts. At the lower end of coverage, the producer is covering mostly input, or production, costs. At the higher end, income above expenses, or profit, is protected.

Most producers desiring to protect against financial loss are likely already doing so, based on survey results.

For a variety of reasons, not every producer wants to be protected fully with crop insurance. Some are very financially secure and are willing to take financial risk. Even with subsidies, federal crop insurance is not inexpensive.

The case could be made that more information and education could help producers make more informed decisions, but overall, the market is well covered by federal crop insurance. Additional coverages are available, but largely aren't utilized.

As a farm manager, I often contemplate crop insurance coverage. At this time of the year, keeping tabs on the grain markets and making sure fertilizer, seed and chemicals are in place takes up a lot of time. Moving grain from on-farm storage to the elevator is a task that competes for time.

Unfortunately, it is very easy to put off crop insurance decisions until just before the deadline, which by then becomes more difficult to thoroughly analyze needs.

Non-subsidized crop insurance coverage is available and merits further consideration. Not nearly as much has been analyzed and publicly discussed about these private insurance policies, because the data is private to the companies offering these products.

The private crop insurance policies vary by company. They are regulated by states, but they are private policies as opposed to subsidized federal crop insurance policies offered by these same companies.

Private policy crop insurance policies are often referred to as Crop Hail, Fire, Wind, or Fire and Wind coverage. I recently interviewed several crop insurance agents about these private policies.

The details that follow are general in scope and not specifics because the products are so varied. Each company's products are unique in coverages and cost.

As a farm manager, I have purchased private policies to work in tandem with federal crop insurance.

Private Insurance

Private policies protect against yield or production loss. The producer pays a premium for various coverages.

Insurance companies package these policies differently, so it is necessary to ask specific questions pertaining to coverage.

Remember, on most federal crop insurance you are protecting revenue. Loss payments on private insurance is based largely on production losses. The main areas of production losses covered are hail, wind and fire.

Illinois, generally, is at a low risk from hail, particularly southern Illinois, but losses do occur. Losses can be deceiving as hail damage can result in further loss from diseases on a weakened crop plant. Hail damage can range from light to severe across the same individual field.

Several years ago, a farm I managed had a major hailstorm. Corn yields dropped from 240 bushels per acre down to 75 across the cornfield. Some areas of the 160-acre field had near complete loss and the corn yielded quite well in others.

Generally, hail and fire coverage are packaged together. To protect against fire, on most policies you buy fire and hail coverage together.

Wind damage does occur in Illinois, but sometimes a field that is "blown down" can right itself back up to a significant degree. Significant wind losses are rare in Illinois.

Sometimes, corn can literally break off, which is called green snap, below the ear and the crop is lost where this occurs.

Green snap does occur in Illinois, but it has not been much of an issue in recent years related to improvement in genetics and herbicides.

Even when green snap has occurred, it doesn't occur across an entire field and generally this happens during a short period of time during tassel formation.

Wind coverage is generally sold separately from hail and fire coverage. Some policies pay an indemnity for "extra harvest cost" on a claim.

Wind insurance often expires at the end of October. Losses after that date may not be covered.

Fire loss is also rare, but there have been significant fires in recent years on "red flag days," when the crop is drying down in the late summer and early fall and the weather is hot, dry and windy.

Field fires can burn a mile or more — generally they don't jump over roads — and can spread quickly.

If the fire is caused by your combine or some other action you do, your liability coverage isn't going to cover you.

Also, fires do start from neighbors burning trash on windy days or motorists throwing cigarettes out the window.

If you can identify the cause and the culprit, they may or may not have adequate coverage for you to collect for damages. You might want to consider fire coverage.

Any of the above events may not significantly damage a whole field. Federal crop insurance has deductibles.

With federal crop insurance, if you have loss on an 80-acre field and your other fields are insured together as one, losing half of your corn crop over 20 acres on the 80-acre field isn't likely going to pay you for the loss due to the deductible spread across the whole farm.

A private policy, depending on your policy, may pay for loss from the first acre. Thus, private insurance can help to fill loss gaps in coverage that occur with federal crop insurance.

As a producer, be specific in your questions to your crop insurance agent.

Replant Costs

Both federal crop insurance and private policies can cover replant costs. However, federal crop insurance spreads replant loss over all your acres.

Basically, you will have replant coverage on 20 acres or 20% of your overall acres, whichever is less. Private insurance can cover replant costs beginning with the first acre of loss.

Adding replant to private crop insurance, generally, runs a couple of dollars per acre and sometimes less.

To review, it is very possible to have yield loss from hail, fire, or wind and not receive an indemnity payment from federal crop insurance while the private policies pay an indemnity.

Producers can collect loss payments from both the private policy and federal crop insurance at the same time.

Private policies are generally focused on covering input costs. Farmers might want to consider $900 to $1,200 coverage per acre on corn with private insurance. Soybean coverage typically ranges from $600 to $900 per acre.

These policies in the current marketplace will run plus or minus $4 to $6 per acre on corn and soybeans a bit more. Wind coverage will be about the same cost, as well, and often runs $15 to $20 per acre.

Managing Risk

Crop insurance is about managing risk. Examine your risk tolerance. If you have well-drained, high-producing land, you might want to consider not having wind insurance, especially if you can withstand the risk of loss and want to reduce crop insurance costs. Land conducive to weaker root systems might warrant extra consideration.

Cash rent landowners cannot purchase crop insurance. However, landowners can benefit from understanding how farmers can protect themselves from risk, especially when it comes to negotiating leases. Farmers can effectively manage most production and income risk, but at a cost to the farmer.

I do hear some producers talking about the high cost of crop insurance. Current yield and price environments put more revenue at risk and thus the cost of crop insurance is increased. Farmers are producing bigger yields and are receiving higher grain prices.

Being able to cover input costs might not be enough to help farmers remain competitive in the bidding for land, so guaranteeing more revenue with more coverage may become a higher priority.

Kevin Brooks is a farm business management and marketing educator serving Fulton, Mason, Peoria and Tazewell counties for University of Illinois Extension.